The IMF paper for next next week’s Oslo meeting on the international economy will come as a shock to this Tory-Lib Coalition. The IMF has always been seen as the enforcer for the neoliberal Washington Consensus, yet here it is now saying: “A recovery in aggregate demand is the single best cure for unemployment”. It adds: “Most advanced countries should not tighten their fiscal policies before 2011 because tightening sooner could undermine recovery” – and, one might add, not in 2011 either unless there is sustained evidence by then of a real recovery. So much for Osbornomics.
The threat of a double-dip recession is growing increasingly ominous. Already unemployment is now rising significantly in the US, while in the UK average house prices have now fallen for the second month running. In this situation the IMF’a current policy appraoch is decidedly cautionary and clear: “An overly severe consolidation would stifle still-weak domestic demand. A fiscal target that demands too much too soon can damage the economy and thus the prospects for success of the fiscal target itself”.
What makes this worse, according to the IMF paper, is when all countries engage in belt-tightening simultaneously since studies show that in this environment budget cuts double output losses and hence push up unemployment faster. Yet these are exactly the circumstances where the Tory-led Government is now imposing unprecedentedly huge 25-40% cuts in public spending on top of severe budget cuts in order to eliminate the entire deficit within 5 years.
When the IMF of all organisations, the spokesman of the US-dominated neoliberal agenda, so comprehensively repudiates the right-wing dogma of massive cuts as the way to solve the deficit problem, the isolation of Britain’s Tory Government could hardly be clearer. But the IMF prescription is based on solid evidence. In the US, the citadel of free-market capitalism where hire-and-fire labour practices were meant to produce flexible adjustment to changing economic conditions, unemployment is now rising fastest while in Germany and Norway with their strong record of collective bargaining and major trade union role, unemploment has hardly risen.
Right-wing thinking is wrong about climate change, wrong about the Big Society, and wrong about swingeing cuts to the economy.
